How to build a budget like a boss in 5 easy steps

You might be on board with the importance of having a formal budget plan, but how do you actually build one? Here are a few tips and tricks that can help you kickstart the budget plan you have been planning to do for a long time now.

I can hear you now! You’re probably saying to yourself, “Okay, I’m on board with the whole budget thing, but how do I build one?”  I’m happy you asked.  I’ve had the fortunate opportunity of working with various companies in my consulting career and built budgets for organizations, departments, and specific projects.  Here are a few tips & tricks I’ve learned along the way:

Top 5 Reasons to Build a Budget :

01. Start with an easy reference point (if you have one)

If you’re building an annual organizational budget for the year, the easiest reference point would be to look at last year’s P&L.  Go line by line and determine which areas will remain constant (rent/utilities are typically the easiest) and which will increase and by what factor.  Building a project-based budget?  Look at the revenue and costs from a similar project.  Having a reference point is always easier than starting from scratch.

If you find yourself building a budget with limited (or no relevant) reference points, open a blank canvas that is a new Excel spreadsheet and start listing out all the key sales & expense drivers of your organization.  The more you make this tool mirror your actual P&L from your accounting software the better because as the year goes along, you’ll want to benchmark the actuals from your accounting system against this Excel-based tool.

If you hate building things in Excel from scratch, there are some stock budget templates available via the power of the internet. I don’t typically recommend this because each tool needs to be customized to your own business and your P&L, but these tools can certainly be a helpful reference on how to structure an effective tool.

02. Determine a benchmark for each input

Once you have the structure all mapped out, determine how you’re going to benchmark and edit each input.  My guess is most of them will be benchmarked based on activity from last year plus or minus some growth or reduction factor.  Some common benchmarks outside of just “what we spent last year” can be:

• Industry averages
• A % of total revenue (for things like processing fees or bad debt)
• A specific growth %, i.e. – if sales grow 10%, we expect expense XYZ to grow 5%
• A combination of specific inputs:
  • For budgets like professional fees or marketing spend, it helps to create an organized list of the specific components of each so that specific line item can easily be removed. 
  • For example, the marketing budget is broken out into ad spend via specific channels. If one of the channels ends up not being utilized, it’s easy to remove that specific line item from the budget while maintaining the other inputs.

Whatever the variable, make sure it is an editable input in a separate cell.  Creating separate input vs output tabs is paramount to structuring an effective tool which brings me to step 3…

03. Structure your tool effectively

If possible, have ONE master output dashboard with various input tabs that feed into it.  This will allow you maximum flexibility to see how changes in the various inputs will affect the projected outcome.  If you’re building an annual budget, I recommend having both the input and output tabs broken out monthly.  This will make it super easy to:

• Benchmark monthly performance
• Allow for adjustments to different inputs as the year goes on to account for seasonality or non-linear growth projections
• Integrate YTD performance with forward-looking projections
  • We call this process ‘waterfall budgeting’ but the idea is to always be tracking toward the most accurate projection of performance for the year by combining the two

04. Pressure test

Once your budget tool is established, take it for a test drive!  Practice adjusting the various inputs and make sure you get the desired adjustment to your output dashboard. Practice comparing it to a P&L from your accounting software to make sure it’s easy to do an apple to apple side by side comparison.  It will be easier to adjust the structure of the tool now v/s mid-year so do so as necessary while it’s fresh in your brain and you can continue fine tuning your ways to make it more fluid and user friendly.

05. Use it!

You’ve got a great budget tool now, use it for all the reasons listed above!  The great part about the entire budgeting process is it’s like any skill in life, the more you do it, the more adept you become at it.  If this is your first attempt at building a budget for your organization, next year you’ll be able to integrate all the learnings from your first version into next year’s draft and so on until you’ll become so adept at modeling it out that you’ll have the entire thing built in your head before you ever put it on paper.  At that point, it will be such a helpful tool for driving leadership level decision making that you’ll wonder what you did without one!

I hope you find this all helpful as you either begin or finalize your respective budgeting exercises for the year.  If you’d like to chat further or ask specific questions about the budgets you’ve been working on or struggling to build, feel free to send me a message on LinkedIn.